After a carousel ride aboard a giant octopus with moving tentacles, we emerge to find an oversized mechanical elephant wandering down the street, steam blowing from its trunk. In the moat of a 14th-century castle lies an electricity pylon, crackling sinisterly.

This is not a surreal version of Disneyland, but the north-western French city of Nantes. The elephant and marine-themed carousel are just two of the highly original attractions created by La Machine, a street theatre company that has given this city’s old docks and shipbuilding warehouses a new lease of life.

Nantes hasn’t always been associated with such fun and frolics. The 20th century left many scars – geographical, physical and emotional. Firstly, the city’s canals and waterways were filled in between the wars, robbing it of its title as a Venice of the west. Less than two decades later, in 1943, it suffered badly at the hands of allied bombs. In the 1980s, its historic shipbuilding yards closed for good.

Added to this trauma is the peculiar fact that, though historically and geographically a part of Brittany, Nantes was temporarily separated from the region during the second world war – and never made its way back. It is an anomaly many local Nantais still resent, believing it to have rid them of their historic Breton identity.

“The city was culturally dead when I arrived here,” says Jean Blaise, an artistic director and cultural impresario who has been based in Nantes since the mid-1980s. “There was one interesting festival and the opera house, that’s all.”

If you make people pay for culture, you will only ever reach a small percentage of the population

Jean Blaise

Blaise was determined to transform the city and its fortunes. In the late 1980s, along with Nantes’ socialist mayor Jean-Marc Ayrault, he set about creating culture wherever he could. They had two cardinal rules: events had to be free, and they should take place outdoors or in public spaces.

“If you make people pay for culture, or only offer it in enclosed spaces like theatres or museums, you will only ever reach a small percentage of the population,” Blaise says.

The pair’s first move was to launch a festival called Les Allumées. Artists hailing from a different major metropolis every year (including Barcelona, St Petersburg and Buenos Aires) were invited to “take over every part of the town, including bridges, industrial sites and private apartments”.

Events were hosted for six consecutive nights, from 6pm to 6am. “At two in the morning everyone would relocate to a huge vacant industrial lot and there would be live music and a bar,” Blaise recalls. “It was a way of opening Nantes to the world.”

Other cities sat up and took notice, as did the national press. Nantes developed an image as a plugged-in, trendy and creative city. The Allumées festival was only ever intended to last for six years – “we wanted there to be the anticipation and thrill of the pre-programmed ending,” Blaise says – but in that time, it kickstarted a new phenomenon: using abandoned industrial spaces for theatre, art and music.

In 2000, Blaise became the founding director of a major new cultural centre, Le Lieu unique, in the former LU biscuit factory (makers of the famous Petit Beurre) on the river Loire. In 2007, he oversaw the creation of a contemporary art biennale, Estuaire; that too lasted six years, and has resulted in a permanent arts trail by French and international artists.

The city’s most recent arts event is a two-month summer street festival, Le Voyage à Nantes (the Journey to Nantes), launched in 2011. “The idea of the festival is to colonise every part of town with artistic creation,” Blaise says.

Traverses, by Aurélien Bory, is a series of permanent geometric crossings. Photograph: Franck Tomps

In fact, Le Voyage is not merely a festival, but also the municipal body that looks after both culture and tourism in the city, with Blaise at its helm. “Combining the management of cultural venues and tourism sites was a first for France,” he explains. “It means we can have one strategy, one branding identity and one offer that is at once rich and very organised.”

Getting to this virtuous point hasn’t been easy, however. A lot of people thought the public art was an “unnecessary and gratuitous provocation”, Blaise says. “They asked us, ‘Why are you wasting my taxes?’ ... ‘Why are you making art for Bobos [bourgeois bohemians] and Parisians?’”

The subsequent shift in attitudes has been dramatic. Now, even the shopkeepers and traders – “at one time our harshest critics,” he says – want artists to create quirky and humorous signs or installations for their shop-fronts. Furthermore, designers, artists and architects are now being commissioned to do much more than just public art installations.

“I don’t think 100% of the population likes or understands what we do,” Blaise says, “but there is this contact, this phenomenon of impregnation and exposure to contemporary art, which means today there is an understanding of art that did not exist 10 or 15 years ago.”

Notable creations for past summer festivals include a picnic area in the docklands overlooking the city, a captivating sculptural playground, and a surreal distorted football pitch – all of which are now permanent fixtures in the city.

For this year’s edition, artistic director Aurélien Bory was asked to rethink a major boulevard on the Île de Nantes (an island in the city centre where the port and shipbuilding yards once thrived). The outcome is a series of florid and geometric crossings that encourages peaceful coexistence between pedestrians, cars and bicycles without the need for lights.

“It’s rare for a public works company to collaborate with artists but we can do this today because we are credible,” Blaise says. “We’ve shown art and culture is not just about decoration or adornment.”

Perhaps most importantly, Blaise has proved that culture can make money. Voyage à Nantes spends €3m (£2.5m) on the festival, but the economic returns are now put at more than €48.8m, thanks to last summer’s 615,000 visitors (of which 15% were from neighbouring European countries).

Ping-Pong Park by Laurent Perbos is one of several works commissioned for Le Voyage summer festival which are destined to become long-term. Photograph: Franck Tomps/LVAN

With between 6,000 and 9,000 people moving here every year, Nantes is now one of the fastest growing cities in France; unemployment levels are also consistently lower than the national average.

“Meeting people and networking is a lot easier here; everything goes much faster,” says Nicolas Mitric, of the graphic and visual storytelling firm Termites Factory. Three of the company’s four partners are from Paris, yet they chose to set up in Nantes for its creative buzz, affordable prices and “human scale” – “you can cycle everywhere,” Mitric enthuses.

Ad-free art on the underground: Düsseldorf's 'pure' new metro line

Read more

“If I could fault one thing, it would be that the Nantais are just too modest,” he adds. “If they shouted about their town a bit louder and the city offered more funding to businesses moving here, this could easily become a French Silicon Valley – an essential stop for digital and creative professionals in this part of the world.”

One of Blaise’s many mantras is: “When money is well spent, culture is never too expensive.” But he is well aware that none of this would have been possible without political continuity: Ayrault (now French foreign minister) was mayor of Nantes for 23 years; his successor, Johanna Rolland, is also a socialist and keen to carry on this cultural project.

Given all his charisma, relationships and energy, however, what will happen to Nantes after Blaise goes? “People associate me with all cultural projects in this city, but there are plenty initiated by other people,” he says. “If a city wants to have a strong and resilient cultural policy, it can go out and buy team members somewhere else, just like a football club.

“The important thing is to understand that culture is fundamental for the life of a city,” he concludes. “In fact, it cannot exist without it.”